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Lloyds Banking Group Sells its SWIP Asset Management Business to Aberdeen AM

Aberdeen se convierte en la mayor gestora de fondos cotizada de Europa tras comprar SWIP — Photo: Diliff. Lloyds Banking Group Sells its SWIP Asset Management Business to Aberdeen AM

Lloyds Banking Group has agreed to sell its asset management business Scottish Widows Investment Partnership Group Limited (SWIP) to Aberdeen Asset Management for an initial consideration payable in Aberdeen shares with a value of approximately £560 million ($900 million), and a further deferred consideration, payable in cash, of up to £100 million ($160 million). As part of the transaction, Lloyds will enter into a long-term strategic asset management relationship, whereby Aberdeen will manage assets on behalf of the Group.

The sale and strategic relationship are expected to result in a stronger asset management partner for the Group and its customers, combining Aberdeen and SWIP’s strengths across fixed income, real estate, active and quantitative equities, investment solutions and alternatives. SWIP’s management and employees will transfer to Aberdeen upon completion.

The sale does not include Scottish Widows, Lloyd’s life, pensions and investment business, which remains core to the Group.

In consideration for SWIP, Lloyds will receive approximately 132 million new ordinary shares of Aberdeen, equivalent to approximately 9.9 per cent of its enlarged issued ordinary share capital.

Aberdeen has also committed to deliver additional consideration 12 months after completion calculated with reference to the amount by which Aberdeen’s volume-weighted average share price for the five trading days prior to completion (the “VWAP”) is below 420 pence but above a floor of 320 pence. To the extent the VWAP is below 320 pence, the Group has the option to terminate the sale. Based on Aberdeen’s share price of 427 pence at close on 15 November 2013, the Group’s shareholding in Aberdeen would have a value of approximately £560 million. In addition, further consideration of up to £100 million will be payable in cash over a five year period depending on the growth in business generated from the strategic relationship with the Group.

Lloyds intends to be a supportive shareholder and has agreed lock-up arrangements whereby, subject to certain exceptions, it will maintain its initial shareholding for at least one year, two-thirds of its initial shareholding for at least two years and one-third of its initial shareholding for at least three years. Further detail on the lock-up arrangements, which can be waived at any time by Aberdeen, is set out at the end of this announcement.

Funds under management for SWIP were £136 billion ($219 billion) at 31 August 2013. The sale is expected to complete by the end of the first quarter of 2014, subject to obtaining the necessary regulatory and other consents.

PIMCO Hires Virginie Maisonneuve as Global Head of Equities

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PIMCO has hired Virginie Maisonneuve as Managing Director, Global Head of Equities and Portfolio Manager. She joins PIMCO from Schroders Plc, where she most recently served as Head of Global and International Equities. Ms. Maisonneuve will be based in the firm’s London office. Her official start date is currently expected to be in January 2014.

Said Mohamed A. El-Erian, PIMCO’s CEO and co-CIO: “Virginie is a proven equity investor and leader who has delivered a track-record of success for clients throughout her 25-year career as a portfolio manager and a business builder. We are delighted to have Virginie on board as part of our multi-year effort to deepen and expand the set of global investment solutions we provide to clients around the world.”

In her new role, Ms. Maisonneuve will lead PIMCO’s active equity portfolio management, contributing also to the development and introduction of new equity and asset allocation strategies.

PIMCO’s equity offerings total more than $50 billion in assets under management. Going forward, the firm will continue with its strategy of carefully adding resources and introducing additional strategies in equities, alternatives, ETFs and other areas to help our clients meet their long-term investment objectives.

“Together with PIMCO’s existing active equity portfolio management teams and our highly-successful StocksPlUS strategies, Virginie will play an instrumental leadership role in enhancing the many ways we serve our clients in the years to come,” added Dr. El-Erian.

ECB Improves Climate for Equities

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El BCE mejora el clima para la renta variable — Wikimedia CommonsFoto: Devcore. ECB Improves Climate for Equities

The surprise but welcome rate cut by the European Central Bank (ECB) has improved the climate for equities, says Robeco’s portfolio manager for Global Allocations.

The rally in share prices driven by extra liquidity from monetary easing throughout this year is likely to continue, Lukas Daalder believes.

As a result, Robeco Asset Allocation has increased its overweight position to equities. At the same time, underweight positions in government bonds have been raised, as lower rates means reduced yields on sovereign debt, Daalder says.

The rate cut also made the euro drop in value by more than a cent against the US dollar. The asset allocation team has now opened up a short position on the EUR/USD, essentially predicting that the single European currency will fall further in value.

‘The global currency war is in full swing and the ECB just added a bit of artillery’

Liquidity-driven rally to continue
“We expect the current liquidity-driven rally in equities to continue for several months,” says Daalder. “We have become more constructive on equities as major risks have diminished while excess liquidity will remain around for longer.”

Some perceived risk factors that were seen as a threat to stock prices include the US government shutdown, which in the end did not endanger the US and global recovery. However, it did distort the macro data, shifting market expectations for the end of quantitative easing to the first quarter of 2014, leaving more excess liquidity around for longer in the economy.

The picture is less rosy for government debt, however, at least in the near term, says Daalder. “The ECB rate cut has pushed bond yields lower, but we don’t think this will be the case in the near term. We expect yields to gradually normalize from here,” he says.

Global growth is picking up
“Economic growth is picking up globally and, although the US Federal Reserve (Fed) has postponed tapering for now, it will probably start reducing its bond-buying program in the first quarter of next year. Then, the strong downward pressure on bond yields that we have seen over the last couple of years will start to end.

“And with the latest rate cut by the ECB we think yields have been pushed to the lower end of the range and will start to rise from here.”

Shorting the euro makes sense for now, says Daalder. “The ECB rate cut can be viewed as an instrument to fight the natural forces that drive up the euro like the positive current account surplus, the shrinking central bank balance sheet and disinflationary trends,” he says.

“With US tapering only postponed until next year and certainly not cancelled, we expect the US dollar to strengthen against the euro. The global currency war is in full swing and the ECB just added a bit of artillery.”

As base rates have lowered, the portfolio manager says high yield bonds remain the most attractive asset class, particularly as spreads against benchmark German bunds have dropped further below their long-term average. This makes them less risky, especially as default rates remain low, while returns remain strong.

European equities favored
Within equities, the asset allocation team has become less constructive on North America as earnings revisions have deteriorated. “Europe looks currently more favorable to us as the improved macro data has not been fully translated into relative equity performance, and of course the ECB rate cut will help share prices further,” says Daalder. “From a macroeconomic point of view, the delay in tapering should be positive for cyclical stocks.”

Among other asset classes, the team is neutral on emerging market debt and commodities, and negative on real estate, due to its sensitivity to interest rates.

Changes to Robeco’s multi-asset model portfolio:

Liberty Mutual Insurance Enters Mexico with the Acquisition of Primero Fianzas

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Liberty Mutual entra en el mercado mexicano con la compra de Primero Fianzas — Photo: ProtoplasmaKid. Liberty Mutual Insurance Enters Mexico with the Acquisition of Primero Fianzas

Liberty Mutual Insurance announced the acquisition of Mexican surety company Primero Fianzas from Grupo Valores Operativos Monterrey, a private investor group. The acquisition enables Liberty Mutual Surety, a business unit of Liberty Mutual’s Global Specialty strategic business unit, to expand its extensive international presence by entering Mexico’s $600 million surety market. The parties have not disclosed the financial terms of the agreement and the acquisition is subject to Mexican regulatory approval.

Headquartered in Mexico City, Primero Fianzas wrote over $33 million in gross written premium in 2012 primarily in the administrative and credit bond segments and operates through 11 offices writing surety business in all Mexican states. The company is the 4th largest surety writer in Mexico based on 2012 market share and ranks #1 in the Mexican credit surety segment.

“We believe Primero Fianzas provides an attractive platform for investing in and expanding our global surety and insurance capabilities in the growing Mexican market,” said Chris Peirce, President of Liberty Mutual Global Specialty. “Primero has strong market presence and a record of profitable growth. Its excellent agent and customer relationships complement Liberty Mutual Surety’s significant underwriting capacity and global expertise, and further solidify our leading North American surety presence.”

This acquisition in Mexico adds to Liberty Mutual Insurance’s current international presence in 28 countries spread across Latin America, Europe, and Asia through the company’s Global Specialty and International business units. Liberty Mutual Insurance is the largest property and casualty insurer in Venezuela, second largest property and casualty company in Colombia, and is among the top 10 property and casualty companies in Brazil and Chile.

Guardian Expands Into Latin America

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Guardian announced that it successfully assisted Konfigura Capital on its sale of an $860 million non-performing loan portfolio in Colombia. The transaction included the sale of residential mortgage loans, SME and corporate loans, unsecured retail credits, and unpaid utility bills. A consortium that included a large US-based debt buyer and a global multilateral credit agency acquired the assets. Specific terms of the transaction were not disclosed.

Paul Brenneke, CEO of Guardian, commented, “We are very pleased to announce this transaction as it clearly demonstrates our commitment to pursuing expansion of our advisory business into Latin America. This sale is one of the largest NPL deals in the region over the last few years, and marks a milestone for the Colombian financial market. We will continue to work with key players in Latin America, and look forward to future opportunities to advise on subsequent high-profile transactions.”

Alberto Carrasquilla, Managing Partner of Konfigura and former Minister of Finance of Colombia, commented, “This transaction is a very significant one for both Konfigura Capital and the Colombian NPL market. We believe the momentum generated by this deal will propel our expansion into other countries in both Latin America and the United States. We are excited to have Guardian as a strategic partner and feel we will benefit from their market knowledge, professionalism and perseverance as we pursue future deals.”

UHNW Clients Opt for Investing in Real Assets, According to WE Family Offices

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El cliente UHNW se decanta por la inversión en activos reales, según WE Family Offices — María Elena Lagomasino, CEO and one of the founders of WE Family Offices. UHNW Clients Opt for Investing in Real Assets, According to WE Family Offices

As explained by Maria Elena Lagomasino, CEO and a founder of WE Family Offices, during an interview with Funds Society, high net worth individuals prefer to direct their investment efforts to real assets rather than to other investment instruments. Companies and real estate capture the attention of such clients, a trend which occurs in the pursuit of a longer time horizon and the need to feel a real commitment to the Project.

“They want to enter into projects, which they don’t wish to manage themselves, but in which they would like to be involved,” she said.

Michael Zeuner, managing partner of WE, also agrees with Lagomasino in that this is the tendency which they see among their customers on a day to day basis. Both managers are clear that the client prefers to invest in companies and properties rather than in other investment vehicles, for example, funds, because they also feel that these were overloaded in the past.

“There is interest in entering companies, in becoming involved in businesses, in which they also come to agreements with other families.” Regarding the price and agreements of transactions of this nature, Lagomasino believes that when alignment is achieved, “the price automatically follows. That’s the key. “

Aside from its clients’ investment profiles, and on reviewing these first few months since the launching of WE family Offices, the executive explained that the U.S. business has performed better than expected in relation to business in Latin America, which is the company’s stronghold. This growth in the U.S. has even led them to meet many of the forecasts indicated on their business plan to five years.

In this regard, Zeuner explained that they already have a compliance service, which has been centralized through an external service which offers the clients complete support for their protection. “This is a tough business with complex rules,” so it is necessary to pay particular attention. “

Zeuner said they have also accomplished all their statutory and structural objectives, placing the client families within the context in order to be able to make any necessary changes and comply with new regulations.

A team for Family Governance and Education, headed by Elaine King, has also been created, and the WE office in New York opened in the Rockefeller Center a few weeks ago, with Zeuner himself at the helm of a team which has been completed with the addition of two new professionals.

Another project which is already underway and which will be released shortly is a web portal for clients, “with very horizontal porpietary technology.”

“We act as coordinators for our clients. The typical We Family Offices client deals with three financial institutions, three or four advisors, several insurance companies and more than a broker.” Lagomasino emphasized explaining their clients’ characteristics. The average WE client family generally has to deal with about 20 different people, hence the importance of a coordinating role.

According to Lagomasino, once all service providers have been reviewed and evaluated, the problem persists until everything is harmonized. The matter may not end there, because in many cases they face family dispersion, to mention just another issue which must be resolved in estate planning, particularly in terms of taxation.

For example, in the same family there may be members who reside in Latin America and other members living in the United States. In this respect, the executive highlights the importance of complying with regulations and harmonizing everything before changing the structure, which is the main problem which they usually find.

As for the forecasts and estimates for WE’s growth during the coming months, Lagomasino believes they are fine as they are and at the pace at which things are being achieved. “We prefer to continue along this line in managing a business in which customer support is top priority”.

This past July, just six months after its launch, WE Family Offices exceeded 2 billion dollars in assets under advisory, that figure is currently around $2.2 billion. The company, based in Miami, serves over 60 high net worth clients in the U.S. and other countries, mainly in Latin America.

Luxembourg Regulator Authorizes First RQFII UCITS Fund

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The Luxembourg regulator has approved a UCITS investing 100% of its net assets in China A-shares (i.e. shares in mainland China-based companies that are traded on a Chinese stock exchange). The UCITS can invest in these shares through the use of the RQFII quota granted to its manager by the competent Chinese authorities.

In order to authorize such an ‘RQFII UCITS’, the CSSF requirements relate to the following :

The fact that the fund must be open-ended;
The experience, competence and qualification of the manager;
The application of appropriate risk management procedures;
The correspondent bank of the depository and the segregation of assets at  the level of the correspondent bank of the depository.

Requirements of the UCITS directive need to be fully complied with.  Notably, since the latest expansion of the RQFII scheme in March 2013, daily liquidity in RQFII funds is required. These new rules correspond entirely to the UCITS regulation that also requires daily liquidity.  The RQFII UCITS scheme is particularly interesting for foreign fund managers using Luxembourg as their platform to distribute UCITS on a cross-border basis. Luxembourg UCITS are a renowned investment scheme distributed in around 70 countries. Accordingly, Luxembourg is the ideal hub to domicile RQFII investment funds and to distribute them globally in order to boost the access to RMB denominated assets worldwide.  The subsequent use of the RQFII quota is still subject to authorization of the China Securities Regulatory Commission (CSRC).  The new development coincides with the release of the new figures underlining Luxembourg’s leading position as a European RMB centre. As of June 2013, 18 asset managers have established RMB funds in Luxembourg with a total of more than 220bn RMB of assets under management. Among these international RMB fund promoters, are the most prestigious names in the industry.

With 56bn RMB in deposits and over 67bn RMB in loans in Q3 2013, Luxembourg maintains its position as the financial centre with largest RMB business volumes in the Eurozone. Detailed facts & figures can be found here.

Lazard launches UCITS fund for the Global Hexagon strategy

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Lazard Asset Management launched a UCITS fund for the Lazard Global Hexagon strategy.

The Lazard Global Hexagon Equity Fund is a long/short equity strategy that seeks to achieve long-term capital appreciation by investing in attractive opportunities around the world, including emerging markets. It utilizes bottom-up fundamental stock selection based on Lazard’s global research and adheres to an investment philosophy with risk management and capital preservation at its core.

Mike Wariebi, Head of Business Development for Alternative Investments in Europe and the Middle East, commented: “Since the inception of the strategy, in June 2010, we have employed an investment approach with a strong focus on capital preservation and an investment discipline which allows the quality of our ideas to be the real driver of returns. With this launch we are delighted to be able to now offer our clients this global long/short equity offering within a UCITS vehicle”.

The Fund is managed by a team led by Portfolio Manager Jean-Daniel Malan, who has over 15 years of industry experience. The investment team also draws upon the firm’s fundamental equity research capabilities through the global research platform.

Jean-Daniel Malan said: “We continuously screen globally for undervalued companies that have improving or high and sustainable financial productivity. Our aim is to give our clients exposure to differentiated and often under-researched investments that offer the best asymmetric risk/reward outcomes. Yet we also have to be attuned to exogenous developments and changes in market sentiment which often present as many opportunities as they do challenges.”

AXA to acquire 51% of Colpatria’s Insurance Operations and Enter the Colombian Market

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AXA se hace con el 51% de las operaciones de seguros de Colpatria en Colombia — Wikimedia CommonsPhoto: Tijs Zwinkels. AXA to acquire 51% of Colpatria’s Insurance Operations and Enter the Colombian Market

AXA has entered into an agreement with Grupo Mercantil Colpatria to acquire a 51% stake in its composite insurance operations in Colombia –Colpatria Seguros– for a total consideration of COP 672 billion (or Euro 259 million). AXA expects to consolidate the acquired operations within its Mediterranean & Latin American Region.

Colpatria Seguros is the number 4 insurance player in Colombia (7% market share), with operations in both Property & Casualty and Life & Savings. It is a leader in the segments of compulsory Motor Third Party Liability ( number 3 with 15% market share) and Workers Compensation ( number 4 with 14% market share). Its nationwide coverage and diversified distribution networks, with multi-tied agents representing approximately 40% of premiums, have supported its strong growth.

The transaction will allow AXA to enter the attractive Colombian market and benefit from its strong growth prospects through developed and profitable operations in a joint-venture with a well-established local partner. Colpatria Seguros will benefit from Axa’s strong know how to accelerate further its development and leverage its competitive advantages in the Colombian market.

“This acquisition gives AXA a unique opportunity to enter the fast-growing Colombian insurance market with well- established positions in all lines of business, while benefiting from the support of a solid and reputable local partner. Moreover, colpatria Seguros’ sustained historical growth and profitability, both above market average, provide AXA with a strong platform for further development. This operation strengthens Axa’s growth profile and marks another milestone in our strategy of accelerating in high growth markets, which is at the heart of our Ambition AXA plan” said Henri de Castries, Chairman and CEO of AXA.

“We are very much looking forward to working with Colpatria Seguro’s teams. By combining their extensive knowledge of the domestic market and Axa’s capabilities and expertise, we expect to provide individual and corporate customers with a wider product range and an innovative offer”, added Jean-Laurent Granier, CEO of AXA Mediterranean & Latin American Region.

Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approval, and is expected to take place in 2014.

About the Colombian Insurance Markets

The Colombian insurance market is the fifth largest in Latin America with ca. Euro 8 billion of revenues. Property & Casualty represent close to 50% of the market, followed by Life, Workers Compensation (Labour Risks) and Voluntary Health. The top 5 players represent ca. 50% of the volumes. Distribution is dominated by multi-tied agents (52%) and brokers (31%).

The Colombian insurance market has enjoyed robust growth over the past four years, at 12% per annum on average. It still presents further upside potential with a low penetration rate of 2.4% and assuming strong prospects for the Colombian economy. On top of increasing economic activity and a growing middle class, market growth has been boosted by the strong development of mandatory insurance coverage, such as Motor Third Party Liability, Workers Compensation and Health Insurance.

In 2012, there were 47.7 million inhabitants in Colombia and GDP was Euro 288 billion.

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Timing of ECB Rate Cut Surprises

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Earlier than expected the ECB decided to lower its official interest rate by 25 basis points to 0.25%. A more accommodative monetary policy is positive for global risk appetite. In this enviroment, ING Investment Management increased their overweight position in equities from +2 to +3.

The asset manager had expected this move, but not before December. Even after the cut, the ECB maintains an easing bias, saying it expects the level of interest rates to stay at the current or a lower level for an extended period of time. Hence, at this stage, the central bank does not close the door to further rate cuts.

Why the ECB has acted on 7 November

Broad support for risk appetite

Not only the ECB policy but also the policies of the other big central banks (US, Japan) are currently supportive for risk appetite. Last but not least the improving earnings, the relatively attractive equity valuations and the lack of event risks and a broad decline in uncertainty should be good for risk appetite.

What would be the biggest danger for risk appetite?

The biggest downside risk would come from a sharp rise in bond yields that is not sufficiently met with an improvement in economic data and the earnings outlook. With global monetary policy in maximum easing mode until March 2014 and better leading indicators, this is a risk scenario, but certainly not our base case scenario.

You can read the full report on the attached document.